Economies of scale HW

The idea of economies of scale is that the more you produce, the cheaper becomes the product you have produced. And the the cost of production increases when there are massive amount of supply. Producing becomes expensive.

And here is the graph:


Output is the stuff produced( e.g look at the graph, look at the level of production) and cost per unit is the cost of the stuff per unit.
Long run is the average cost of producing, whatever you make: shoes, drugs, food.
If we look at the graph there is 0 in the beginning, according to this output can be whatever even one million.
Also we can see the point Technical optimum, it's the point where the businesses wanna be. Internal economies of scale is when people save money, cost per units going down. Internal diseconomies of scale, it's the cost of more money that their making for each thing.
If you look at the arrow which goes right, it shows that, the higher the output, lower the cost per unit gets. Every extra output you make, the cost decreases little bit. And the reason for this is firms getting bigger, they are taking more people and training them to do one thing and that person gets really good at it. So you make more money you can afford better technology's, assets.

As you can see when we pass the technical optimum cost per unit goes up. Because of overproducing. Everything will cost you more per unit. And the reason for this is when business get's really huge there are lot's of workers, lot's of staff, managers. And they all get confused, they make a mistake. They make wrong estimations and etc. This can cause overproduction.

And here is another graph:


The arrow shows that we can shift the curve downwards. It's because people are Learning by doing. So when we shift it down every point i that line is the cost per unit is less than before.
And this is done by Learning by doing, the more you do something, better your gonna be at it.


b-) For example if people grow less tomatoes, it means the output of tomato juice will be less, because cost per unit will increase. If people grow more tomatoes, economies of scale for tomato juice may reach technical optimum because the output increases. But if the business is careless it can cause overproduction and the cost per unit increases again.